Oracle's Crystal Ball Still Cloudless

Wednesday

Oracle's third-quarter showed the company was able to rebound from its second-quarter misstep, but it's cloud computing segment still has a lot of work to do.

NEW YORK (TheStreet) -
Oracle's(:ORCL) third-quarter earnings were better than expected, but its cloud computing business continues to struggle to gain traction, losing out to companies like Salesforce.com(:CRM), Red Hat(:RHT), and Rackspace(:RAX).

Oracle reported non-GAAP earnings of 62 cents a share on $9.06 billion in non-GAAP revenue, beating estimates from Thomson Reuters of 56 cents a share and $9.02 billion in revenue.

On the conference call, CEO Larry Ellison said that the company's cloud computing business, led by its Fusion applications, is starting to gain traction. True-to-form, Ellison also used the platform to take verbal shots at competitors Salesforce.com and SAP(:SAP).

Oracle has tried to expand its cloud computing business, despite Ellison once referring to the industry as "complete gibberish" and "water vapor". The database giant recently purchased Taleo, but has struggled to gain traction against its competitors, and shareholders have suffered as a result.

Over the past year, shares of Oracle have lost 2.14%, while Salesforce.com is up 25.8%, Red Hat is up 29.87%, Rackspace is up 54.85%, and SAP is up 24.44%.

Salesforce.com and Rackspace are among TheStreet'stop cloud stocks for 2012.

Piper Jaffray analyst Mark Murphy recently conducted a survey with nine industry contacts in the Oracle ecosystem. While four of them were positive on the firm, the consensus on the company's cloud strategy is that Oracle missed out in the beginning, and is now trying to play catch up. One industry contact went so far as to say, "Now they are trying to get into the game with the Taleo acquisition." Murphy rates Oracle shares "overweight" with a $33 price target.

Research firm IDC estimates that revenue from public IT cloud services will grow four times faster than the entire IT market, with $72.9 billion in revenue in 2015. Oracle is desperately trying to capture a significant chunk of that, but results thus far have been lukewarm.

Sanford Bernstein analyst Mark Moerdler believes that Oracle may be pressured by the cloud over the long haul. "Over the longer term, we believe Oracle's core ERP and database businesses are under pressure from the cloud, in a similar manner to Microsoft(:MSFT) and SAP," Moerdler wrote, in a research report. "We believe Oracle's core database business could be threatened by SAP's HANA in the long run. Yesterday's strong earnings suggest Oracle has fixed its execution problems, but we continue to believe the above long-term issues would weigh on the company." He rates Oracle shares "market perform" with a $34 price target.

"While the software as a service trend has been growing rapidly since 2005, it is now exploding as major enterprises are accelerating their adoption of cloud computing," wrote Pat Walravens, an analyst at JMP Securities, in a late February research report. "Our sense is that Salesforce.com and other SaaS companies are increasingly taking market share from traditional enterprise software vendors like Oracle and SAP."

After last night's earnings report, Walravens added, "With respect to cloud strategy, Ellison indicated the public cloud will be generally available in Q4 and will include financial applications. We look forward to seeing this offering." Walravens rates Oracle "market perform."

When Oracle stumbled during its second-quarter, there were concerns over execution. Now that it has rebounded to beat Wall Street expectations, a question mark still hangs over the company's cloud strategy, and that may be hurting shareholders in the long-run.

Shares of Oracle are higher in Wednesday trading, up 0.88% to $30.36.

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